# iSpecimen Inc.: Form 10-Q for the period ended Sep 30, 2022

- Company: [iSpecimen Inc.](/companies/ispc.md) (CIK 1558569)
- Form: 10-Q
- Filed: 2022-11-08
- Accepted by EDGAR: Nov 8, 2022, 06:30 ET
- Period: 2022-09-30
- Accession: 0001558370-22-016722
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1558569/000155837022016722/ispc-20220930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1558569/000155837022016722/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $2.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $7.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $1.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $3.3m | us-gaap:CostOfGoodsAndServicesSold |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$3.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | −$8.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-07-01 to 2022-09-30 | $58.6k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-01-01 to 2022-09-30 | $138.9k | us-gaap:InterestExpense |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$3.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | −$8.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.35 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.92 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.35 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | −$0.92 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 8,878,888 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 8,822,423 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$5.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2022-09-30 | $20.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $24.2m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $27.9m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $2.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $5.5m | us-gaap:Liabilities |
| Long-term debt | at 2022-09-30 | $3.4m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2022-09-30 | $22.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 67,999 characters.

References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to iSpecimen Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

### Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s annual report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 22, 2022. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

### Overview

We were incorporated in 2009 under the laws of the state of Delaware. Our mission is to accelerate life science research and development via a single global marketplace platform, the iSpecimen Marketplace, which connects researchers to subjects, specimens, and associated data. We are headquartered in Lexington, Massachusetts. We operate as one operating and reporting segment.

In addition to creating a single global platform where both specimen providers and researchers can connect, the iSpecimen Marketplace automates the process of searching for and selecting specimens for research. The platform taps into healthcare provider data to gain insights into the available samples in biobanks or laboratories, or to gain insights into the patient populations to support specimen collections directly from research subjects. The platform receives de-identified data from electronic medical records, laboratory information systems, and other healthcare data sources of available specimens and research subjects and harmonizes the data across all participating organizations.

Researchers can search this data using our intuitive web-based user interface to obtain specimens more efficiently. They can instantly find the specific specimens they need for their studies, request quotes for these specimens or for custom collections directly from research subjects, place orders, and track and manage their specimens and associated data across projects.

Biospecimen providers also gain efficiencies using the iSpecimen Marketplace, not only because the platform provides instant access to a large researcher base, but because the technology orchestrates the bioprocurement workflow from specimen request to fulfilment. Specimen providers access intuitive dashboards to view requests, create proposals, and track and manage their orders.

Finally, the platform helps with administrative and reporting functions for researchers, suppliers, and our internal personnel, including user and compliance management.

The iSpecimen Marketplace is composed of four major functional areas: search, workflow, data, and administration and reporting. We continue to invest in the evolution of these areas to improve engagement with the platform and liquidity across it. Our core business objective is to retain and grow both researcher and supplier usage of our platform to support biospecimen procurement, as well as to position the Company to explore other adjacent business opportunities that can benefit from the use of the iSpecimen Marketplace.

The iSpecimen Marketplace currently supports the supply chain management and bioprocurement process for specimens and associated data. We generate revenue by procuring various specimens from hospitals, laboratories, and other supply sites comprising our network, and delivering them to our medical research customers using our proprietary software to identify and locate the required specimens. Costs paid to acquire specimens from hospitals and laboratories generally varies depending upon the sample type, collection requirements, and data provided. We generally operate in a “just in time” fashion, meaning we procure specimens from our suppliers and distribute specimens to our customers after we obtain an order for specimens from a research client. Generally, we do not speculatively purchase and bank samples in anticipation of future, unspecified needs. We believe our approach offers many advantages over a more traditional inventory-based supplier business model where biorepositories take inventory risks, and where inventory turnover and cash conversion cycles can be lengthy.

### Impact of the COVID-19 Pandemic on Our Operations

We are subject to the risks arising from the COVID-19 outbreak’s social and economic impacts on the healthcare services industry. Our management believes that the social and economic impacts could have an impact on future financial condition, liquidity, and results of operations, which include but are not limited to the following: (i) restrictions on in-person activities arising from shelter-in- place, or similar isolation orders, that limit our ability to procure specimens through our supply chain; (i) decline in researcher demand for specimens; and (iii) deteriorating economic conditions, such as increased unemployment rates and recessionary conditions.

While our supply sites were mostly operational as of September 30, 2022, we expect that while the pandemic lasts, we will continue to experience slowdowns in overall specimen collections as the pandemic surges in various parts of the world due to social distancing on the part of research subjects, supply partner site employees, and customer research organizations. Even with the growing availability of testing and vaccines and the relaxation of public health measures that were implemented to limit the spread of the pandemic, there continues to be uncertainty around the COVID-19 pandemic and its impact.

We have implemented several measures to protect the health and safety of our workforce including a voluntary work-from-home policy for our workforce who can perform their job from home as well as the restrictions on discretionary business travel. Most of our employees have returned to working from the office on a part-time basis.

The full future impact of the COVID-19 pandemic on the Company will depend on factors such as length of time of the pandemic; the responses of federal, state and local government; the impact of future variants that may emerge; vaccination rates among the population; the efficacy of the COVID-19 vaccines; the longer-term impact of the pandemic on the economy and consumer behavior; and the effect on our employees, vendors and suppliers. We will continue to monitor and evaluate the ongoing COVID-19 pandemic and will work to respond appropriately to the impact of COVID-19 on our business, as well as customers’ and suppliers’ businesses.

### Inflation and Recession

The Company’s financial performance is subject to global economic conditions and their impact on levels of spending by our customer research organizations, particularly discretionary spending for procurement of specimens used for research. Economic recessions may have adverse consequences across industries, including the health and bio-specimen industries, which may adversely affect our business and financial condition. As a result of the ongoing COVID-19 pandemic, there is substantial uncertainty about the strength of the global economy, which may currently or in the near term be in a recession and have experienced rapid increases in uncertainty about the pace of potential recovery. In addition, changes in general market, economic and political conditions in domestic and foreign economies or financial markets, including fluctuation in stock markets resulting from, among other things, trends in the economy and inflation, as are being currently experienced, may result in researchers’ demand for specimens due to the research organization’s inability to obtain funding through grants.

We believe that our business will continue to be resilient through a continued economic downturn or recession, or slowing or stalled recovery therefrom, and that we have the liquidity to address the Company’s financial obligations and alleviate possible adverse effects on the Company’s business, financial condition, results of operations or prospects.

### Impact of the Russian-Ukrainian War on Our Operations

Our business was negatively impacted during the first half of 2022 by the ongoing war between Russia and Ukraine. At the start of the war, we had approximately $1 million of purchase orders that were slated to be fulfilled by our supply network in Ukraine and Russia. This supply network shut down quickly at the start of the war. Ukrainian suppliers were disabled due to war conditions and evacuations and some of our Russian suppliers were disabled by sanctions. While we mobilized to shift these purchase orders to other suppliers in our network, the process of getting specimen collections from other supply sites took time, which has caused a delay in the fulfillment of such purchase orders.

As of September 30, 2022, the supply sites in Russia that had not been under sanctions were now accessible and our supply sites in Ukraine had mostly reopened. However, due to the uncertainty caused by the ongoing war, Ukraine suppliers may again become inaccessible to us. Therefore, as long as the uncertainty continues, we will not use them as sole specimen sources at a purchase order level. Alternate suppliers do not have the same favorable unit economics or specimen collection rates. The short and long-term implications of the war are difficult to predict at this time. The imposition of more sanctions and counter sanctions may have an adverse effect on the economic markets generally and could impact our business and the businesses of our supply partners, especially those in Ukraine and Russia. Because of the highly uncertain and dynamic nature of these events, it is not currently possible to estimate the impact of the war on our business and the companies from which we obtain supplies and distributes specimens.

### Known Trends, Demands, Commitments, Events or Uncertainties Impacting Our Business

We are committed to investing in and developing our technology. In the nine months ended September 30, 2022, we capitalized approximately $1,549,000 of internally developed software costs and have plans to continue investing at this level for the remainder of the year. We anticipate that these investments will increase revenue opportunities and result in operational efficiencies, positively impacting our liquidity, capital resources and results of operations in the future with a less than two-year rate of return on the investment.

We continue to experience declines in our COVID-19 revenue. While our non-COVID-19 revenue significantly increased by $407,000 or 6% from approximately $6,063,000 for the nine months ended September 30, 2021 to $6,470,000 for the nine months ended September 30, 2022, our COVID-19 revenue was approximately $971,000 in the nine months ended September 30, 2022 compared to approximately $2,523,000 for the same period in 2021, a $1,552,000, or 62%, decrease in COVID-19 revenue. We anticipate that our non-COVD-19 revenue will continue to increase while our COVID-19 revenue will continue to decline, which might impact our results of operations at a level that is not currently determinable due to the uncertainty of the continued impact of COVID-19.

As disclosed in a Current Report on Form 8-K filed on September 22, 2022, the Company received notices of departure from the Company’s Chief Executive Officer (“CEO”) and its Chief Operating Officer (“COO”) effective as of October 24, 2022. The Company’s Chief Financial Officer (“CFO”) was named as our interim Chief Executive Officer (“Interim CEO”) while also continuing as our Chief Financial Officer (“CFO”).

Our Interim CEO has increased efforts to manage the expanded responsibilities of Interim CEO, while continuing her responsibilities as CFO. The mission of the Company to accelerate life sciences research and development via a single global marketplace platform remains unchanged under the new management.

The focus of our Interim CEO’s activities is directed at increasing our cross-functional team communications to help improve execution, and significant focus and attention has been directed at internal and external communications. Our Interim CEO has been reviewing the Company’s structure, processes, and resources to evaluate and identify areas for improvement, and has been focusing on creating and ensuring a runway for growth and scale. Our Interim CEO has also reviewed our technology roadmap and has been green-lighting projects to accelerate development timelines.

We have identified opportunities to match specimen requests more effectively to the inventory and capabilities of our supplier network and have begun addressing these opportunities. We believe that the result will be a dramatic increase in the utilization rate of our supplier network, which currently is heavily skewed toward the top 10-15% of our suppliers. We recently began an initiative designed to dramatically reduce or eliminate supplier concentration altogether. We expect the re-leveling of our network will result in higher match rates, market depth and improved time-to-match.

We recently initiated our Marketplace Onsite Program to offer additional support to our biospecimen provider partners, and have introduced our Marketplace Onsite coordinator, whose purpose is to field all requests made by the provider partner and submit proposals on behalf of the provider partner, resulting in streamlined sample-related management and reducing strain on existing staff and product pipelines.

Additionally, this year we launched a significant initiative to reorganize our sales approach, placing a renewed focus on our sales pipeline and positioning it to scale in a post COVID-19 environment. Related to this initiative, we have retained a consultant to evaluate our existing commercial and operational structure as well as processes to identify existing shortfalls and identify areas for improvement to drive revenue. Specifically, we are conducting a top-down analysis of our commercial organization and our sales fulfillment pipeline. This initiative will help us to evaluate the drivers required for successful purchase order fulfillment. We will also be developing additional survey capabilities at various decision points across the sales process to improve results at those critical customer decision points. We believe that the customer insights gained will result in further improvements to our rates of closing business as well as the overall customer experience.

### Components of Our Results of Operations

### Revenue

We generate revenue by procuring various specimens from hospitals, laboratories, and other supply sites, for our medical research customers using our proprietary software, the iSpecimen Marketplace, to identify, locate, and ultimately validate the required specimens to our customers’ requested specifications. The Company’s performance obligation is to procure a specimen meeting the customer specification(s) from a supplier, on a “best efforts” basis, for our customer at the agreed price per specimen as indicated in the customer contract with the Company. We do not currently charge suppliers or customers for the use of our proprietary software. Each customer will execute a material and data use agreement with the Company or agrees to online purchase terms, each of which includes terms such as specimen and data use, shipment terms, payment and cancellation terms. These are then supplemented by purchase orders that specify specimen requirements including detailed inclusion/exclusion criteria, quantities to be collected, and pricing. Collectively, these customer agreements represent the Company’s contracts with its customer. Generally, contracts have fixed unit pricing. For certain specimen orders, a refundable customer deposit may be required prior to order fulfillment depending on project set-up requirements, presented as deferred revenue. The Company expects to recognize the deferred revenue within the next twelve months.

We recognize revenue over time, as we have created an asset with no alternative use and we have an enforceable right to payment for performance completed to date. At contract inception, we review a contract and related order upon receipt to determine if the specimen ordered has an alternative use to us. Generally, specimens ordered do not have an alternative future use to us and our performance obligation is satisfied when the related specimens are accessioned. We use an output method to recognize revenue for specimens with no alternative future use. The output is measured based on the number of specimens accessioned.

Customers are typically invoiced upon shipment. Depending on the quantity of specimens ordered, it may take several accounting periods to completely fulfill a purchase order. In other words, there can be multiple invoices issued for a single purchase order, reflecting the specimens being accessioned over time. However, specimens are generally shipped as soon as possible after they have been accessioned.

### Cost of Revenue

Cost of revenue primarily consists of the purchase price to acquire specimens from hospitals and laboratories, inbound and outbound shipping costs, supply costs related to samples, payment processing and related transaction costs, and costs paid to the supply sites to support sample collections. Shipping costs upon receipt of products from suppliers are recognized in cost of revenue.

Additionally, we believe that loss from operations is a more meaningful measure of profitability than gross profit due to the nature of specimens accessioned and the diversity of our pricing.

### Technology

Technology costs include payroll and related expenses for employees involved in the development and implementation of our technology, software license and system maintenance fees, outsourced data center costs, data management costs, depreciation and amortization, and other expenses necessary to support technology initiatives. Collectively, these costs reflect the efforts we make to offer a wide variety of products and services to our customers. Technology and data costs are generally expensed as incurred.

A portion of technology costs are related to research and development. Costs incurred for research and development are expensed as incurred, except for software development costs that are eligible for capitalization. Research and development costs primarily include salaries and related expenses, in addition to the cost of external service providers.

### Sales and Marketing

Sales and marketing costs primarily consist of payroll and related expenses for personnel engaged in marketing and selling activities, including salaries and sales commissions, travel expenses, public relations and social media costs, ispecimen.com website development and maintenance costs, search engine optimization fees, advertising costs, direct marketing costs, trade shows and events fees, marketing and customer relationship management software, and other marketing-related costs.

### Supply Development

We have agreements with supply partners that allow us to procure specimens from them and distribute these samples to customers. Supply development costs primarily include payroll and related expenses for personnel engaged in the development and management of this supply network, related travel expenses, regulatory compliance costs to support the network, and other supply development and management costs.

### Fulfillment

Fulfillment costs primarily consist of those costs incurred in operating and staffing operations and customer service teams, including costs attributable to assess the feasibility of specimen requests, creating and managing orders, picking, packaging, and preparing customer orders for shipment, responding to inquiries from customers, and laboratory equipment and supplies.

### General and Administrative

General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses for human resources, legal, finance, and executive teams, associated software licenses, facilities and equipment expenses, such as depreciation and amortization expense and rent, outside legal expenses, insurance costs, and other general and administrative costs.

### Financial Operations Overview and Analysis for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited)

### Comparison of the Three Months Ended September 30, 2022 and 2021

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Three Months Ended September 30, 2022 | ​ ​ | ​ ​ 2021 | ​ ​ ​ | ​ ​ Change Dollars | ​ ​ | ​ ​ Percentage |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue |  | $2,583,412 |  | $2,718,534 |  | $(135,122) |  | (5)% |
| Operating expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Cost of revenue | ​ | 1,181,562 | ​ | 913,833 | ​ | 267,729 |  | 29% |
| Technology | ​ | 752,704 | ​ | 543,581 | ​ | 209,123 |  | 38% |
| Sales and marketing | ​ | 832,625 | ​ | 513,107 | ​ | 319,518 |  | 62% |
| Supply development | ​ | 166,058 | ​ | 171,595 | ​ | (5,537) |  | (3)% |
| Fulfillment | ​ | 516,637 | ​ | 399,145 | ​ | 117,492 |  | 29% |
| General and administrative | ​ | 2,234,885 | ​ | 1,636,346 | ​ | 598,539 |  | 37% |
| Total operating expenses | ​ | 5,684,471 | ​ | 4,177,607 | ​ | 1,506,864 |  | 36% |
| Loss from operations | ​ | (3,101,059) | ​ | (1,459,073) | ​ | 1,641,986 |  | 113% |
| Other income (expense), net | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest expense | ​ | (58,591) | ​ | (75,922) | ​ | 17,331 |  | 23% |
| Interest income | ​ | ​ 60,812 | ​ | ​ 3,659 | ​ | ​ 57,153 | ​ | (1,562)% |
| Other income (expense), net | ​ | ​ 3,148 | ​ | ​ (21,687) | ​ | ​ 24,835 | ​ | 115% |
| Total other income (expense), net | ​ | 5,369 | ​ | (93,950) | ​ | 99,319 |  | 106% |
| Net loss | ​ | $(3,095,690) | ​ | $(1,553,023) | ​ | ​ (1,542,667) |  | (99)% |

### Revenue

Revenue decreased by approximately $135,000 or 5%, from approximately $2,719,000 for the three months ended September 30, 2021 to approximately $2,583,000 for the three months ended September 30, 2022. This was primarily due to the reduction in demand for COVID-19 specimens in the three months ended September 30, 2022. For the three months ended September 30, 2022 and 2021, revenue derived from specimens related to COVID-19 accounted for approximately $322,000 and $923,000, or 12% and 34%, respectively, of our total revenue. For the three months ended September 30, 2022 and 2021, revenue derived from specimens related to non-COVID-19 accounted for approximately $2,261,000 and $1,795,000, or 88% and 66%, respectively, of our total revenue. Although there was a change in specimen mix that resulted in an increase in the average selling price per specimen of approximately $32, or 6%, compared to the same prior year’s period, specimens accessioned during the three months ended September 30, 2022 decreased by 560, or 11%, to 4,740, compared to 5,300 of specimens accessioned during the same period in the prior year.

### Cost of Revenue

Cost of revenue increased by approximately $268,000, or 29%, from approximately $914,000 for the three months ended September 30, 2021 to approximately $1,182,000 for the three months ended September 30, 2022, which was attributable to a 45% increase in the average cost per specimen offset by an 11% decrease in the number of specimens accessioned for the current period compared to the same period in the prior year.

### Technology

Technology expenses increased by approximately $209,000, or 38% from approximately $544,000 for the three months ended September 30, 2021 to approximately $753,000 for the three months ended September 30, 2022. The period over period increase was related to increases in professional fees of approximately $221,000, computer, software and information technology services of approximately $162,000, and amortization of internally developed software of approximately $50,000, offset by a decrease in payroll and related expenses of approximately $224,000.

### Sales and Marketing Expenses

Sales and marketing expenses increased by approximately $320,000, or 62%, from approximately $513,000 for the three months ended September 30, 2021 to approximately $833,000 for the three months ended September 30, 2022. The period over period increase was attributable to increases in payroll and related expenses of approximately $167,000, external marketing efforts of approximately $162,000, software costs of approximately $6,000 and travel of approximately $12,000, offset by a decrease in professional fees of approximately $27,000.

### Supply Development

Supply development expenses decreased by approximately $6,000, or 3%, from approximately $172,000 for the three months ended September 30, 2021 to approximately $166,000 for the three months ended September 30, 2022. The period over period decrease was primarily attributable to a decrease in payroll and related expenses of approximately $33,000, offset by increases in operating and regulatory compliance costs of approximately $20,000, and travel of approximately $7,000.

### Fulfillment

Fulfillment costs increased by approximately $118,000, or 29%, from approximately $399,000 for the three months ended September 30, 2021 to approximately $517,000 for the three months ended September 30, 2022. The period over period increase was primarily attributable to an increase in payroll and related expenses of approximately $125,000 for personnel engaged in pre-sales feasibility assessments and post-sales fulfillment activities, offset by a decrease in operating expenses of approximately $7,000.

### General and Administrative Expenses

General and administrative expenses increased by approximately $599,000, or 37%, from approximately $1,636,000 for the three months ended September 30, 2021 to approximately $2,235 ,000 for the three months ended September 30, 2022. The period over period increase was attributable to increases in payroll and related expenses of approximately $64,000, severance for our former Chief Executive Officer of $376,000, taxes and insurance of approximately $166,000, operating and maintenance expenses of approximately $122,000, and utilities and facilities expenses of approximately $23,000, offset by decreases in bad debt expense of approximately $138,000, other general expenses of approximately $7,000, and depreciation and amortization expenses of $7,000.

### Other Income (Expense), Net

Other income (expense), net, increased by approximately $99,000, or 106%, from approximately $94,000 of other expense net, for the three months ended September 30, 2021 to approximately $5,000 of other income, net, for the three months ended September 30, 2022. The period over period increases in other income (expense), net, was attributable to increases in interest income of approximately $57,000, an increase in other income of approximately $25,000, and a decrease in interest expense of approximately $17,000.

### Comparison of the Nine Months Ended September 30, 2022 and 2021

| ​ ​ ​ | ​ ​ ​ | ​ ​ ​ Nine Months Ended September 30, 2022 | ​ ​ | ​ ​ 2021 | ​ ​ ​ | ​ ​ Change Dollars | ​ ​ | ​ ​ Percentage |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue |  | $7,440,760 |  | $8,586,217 |  | $(1,145,457) |  | (13)% |
| Operating expenses: | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Cost of revenue | ​ | 3,347,392 | ​ | 4,026,680 | ​ | (679,288) |  | (17)% |
| Technology | ​ | 1,915,877 | ​ | 1,315,331 | ​ | 600,546 |  | 46% |
| Sales and marketing | ​ | 2,530,619 | ​ | 1,690,085 | ​ | 840,534 |  | 50% |
| Supply development | ​ | 590,508 | ​ | 383,864 | ​ | 206,644 |  | 54% |
| Fulfillment | ​ | 1,480,425 | ​ | 955,516 | ​ | 524,909 |  | 55% |
| General and administrative | ​ | 5,620,393 | ​ | 4,144,989 | ​ | 1,475,404 |  | 36% |
| Total operating expenses | ​ | 15,485,214 | ​ | 12,516,465 | ​ | 2,968,749 |  | 24% |
| Loss from operations | ​ | (8,044,454) | ​ | (3,930,248) | ​ | 4,114,206 |  | 105% |
| Other expense, net | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Loss on extinguishment of bridge notes and bridge notes, related parties | ​ | — | ​ | (2,740,425) | ​ | 2,740,425 |  | 100% |
| Interest expense | ​ | (138,912) | ​ | (2,062,548) | ​ | 1,923,636 |  | 93% |
| Change in fair value of derivative liability on convertible notes | ​ | — | ​ | (271,000) | ​ | 271,000 |  | 100% |
| Loss on extinguishment of convertible notes and convertible notes, related parties | ​ | ​ — | ​ | ​ (260,185) | ​ | ​ 260,185 | ​ | 100% |
| Interest income | ​ | ​ 87,347 | ​ | ​ 3,878 | ​ | ​ 83,469 | ​ | (2,152)% |
| Other income (expense), net | ​ | ​ 9,778 | ​ | ​ (21,756) | ​ | ​ 31,534 | ​ | 145% |
| Change in fair value of derivative liability on bridge notes and bridge notes, related parties | ​ | ​ — | ​ | ​ 1,582,700 | ​ | ​ (1,582,700) | ​ | 100% |
| Gain on extinguishment of note payable | ​ | ​ — | ​ | ​ 788,156 | ​ | ​ (788,156) | ​ | 100% |
| Total other expense, net | ​ | (41,787) | ​ | (2,981,180) | ​ | 2,939,393 |  | 99% |
| Net loss | ​ | $(8,086,241) | ​ | $(6,911,428) | ​ | ​ (1,174,813) |  | (17)% |

### Revenue

Revenue decreased by approximately $1,145,000, or 13%, from approximately $8,586,000 for the nine months ended September 30, 2021 to approximately $7,441,000 for the nine months ended September 30, 2022. This was primarily due to the reduction in demand for COVID-19 specimens, a shutdown in our Ukrainian and Russian supply network which impacted our ability to fulfill orders at the start of the war, and the impact of the recession which has resulted in a reduction of the size of purchase orders. For the nine months ended September 30, 2022 and 2021, our revenue derived from specimens related to COVID-19 accounted for approximately $971,000 and $2,523,000, or 13% and 29%, respectively, of our total revenue. For the nine months ended September 30, 2022 and 2021, our revenue derived from specimens related to non-COVID-19 accounted for approximately $6,470,000 and $6,063,000, or 87% and 71%, respectively, of our total revenue. Specimens accessioned during the nine months ended September 30, 2022 decreased by approximately 482, or 3%, to approximately 16,668, compared to approximately 17,150 of specimens accessioned in the same period in the prior year. Also, a change in specimen mix resulted in a decrease in average selling price per specimen of approximately $54, or 11%, compared to the same period in the prior year.

### Cost of Revenue

Cost of revenue decreased by approximately $679,000, or 17%, from approximately $4,027,000 for the nine months ended September 30, 2021 to approximately $3,347,000 for the nine months ended September 30, 2022, which was attributable to a 14% decrease in the average cost per specimen impacted by the specimen mix during the nine month period ended September 30, 2022 over the same period in 2021 and a 3% decrease in the number of specimens accessioned during the nine months ended September 30, 2022 over the same period in the prior year.

### Technology

Technology expenses increased by approximately $601,000, or 46%, from approximately $1,315,000 for the nine months ended September 30, 2021 to approximately $1,916,000 for the nine months ended September 30, 2022. The period over period increase was related to increases in general operating expense of approximately $452,000, depreciation and amortization of approximately $111,000, and payroll and related expenses of approximately $38,000.

### Sales and Marketing Expenses

Sales and marketing expenses increased by approximately $841,000, or 50%, from approximately $1,690,000 for the nine months ended September 30, 2021 to approximately $2,531,000 for the nine months ended September 30, 2022. The period over period increase was primarily attributable to increases in payroll and related expenses of approximately $395,000, an increase in external marketing efforts of approximately $359,000 and general operating expenses related to sales and marketing of approximately $87,000.

### Supply Development

Supply development expenses increased by approximately $207,000, or 54%, from approximately $384,000 for the nine months ended September 30, 2021 to approximately $591,000 for the nine months ended September 30, 2022. The period over period increase was primarily attributable to increases in payroll and related expenses of approximately $145,000, operating and regulatory compliance costs of approximately $46,000, and general supply development expenses of approximately $16,000.

### Fulfillment

Fulfillment costs increased by approximately $525,000, or 55%, from approximately $956,000 for the nine months ended September 30, 2021 to approximately $1,480,000 for the nine months ended September 30, 2022. The increase was primarily attributable to an increase in payroll and related expenses of approximately $537,000 for personnel engaged in pre-sales feasibility assessments and order fulfillment, offset by a decrease in general operating expenses related to fulfillment of approximately $12,000.

### General and Administrative Expenses

General and administrative expenses increased approximately $1,475,000, or 36%, from approximately $4,145,000 for the nine months ended September 30, 2021 to approximately $5,620,000 for the nine months ended September 30, 2022. The period over period increase was attributable to increases in directors’ and officers’ insurance of approximately $392,000, severance for our former Chief Executive Officer of $376,000, compensation costs of approximately $314,000, computer and software of approximately $254,000, taxes of approximately $195,000, utilities and facilities expenses of approximately $58,000, travel expenses of approximately $35,000, marketing and advertising expenses of approximately $29,000, other general expenses of approximately $24,000, offset by decreases in bad debt expense of approximately $164,000, depreciation expense of approximately $20,000, and finance charges of approximately $18,000.

### Other Expense, Net

Other expense, net, decreased by approximately $2,939,000, or 99%, from approximately $2,981,000 for the nine months ended September 30, 2021 to approximately $42,000 for the nine months ended September 30, 2022. The period over period decreases in other expense, net, was attributable to the decreases in loss on extinguishment of secured promissory notes the Company issued from 2018 to 2021 to investors and existing stockholders (the “bridge notes”) of approximately $2,740,000, interest expense of approximately $1,924,000, change in fair value of derivative liability on convertible notes (the “convertible notes”) of approximately $271,000, loss on extinguishment of convertible notes and convertible notes, related parties of approximately $260,000, an increase in interest income of approximately $83,000 and an increase in other income, net, of approximately $32,000, offset by decreases in change in fair value of derivative liability on bridge notes and bridge notes, related parties of approximately $1,583,000 and gain in extinguishment of notes payable of approximately $788,000.

### Liquidity and Capital Resources

*(unaudited)*

| ​ ​ ​ ​ Balance Sheet Data: | ​ ​ ​ ​ ​ | ​ ​ ​ ​ September 30, 2022 ​ ​ | ​ ​ ​ ​ ​ | ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Dollars ​ ​ | ​ Change ​ ​ | ​ ​ ​ ​ | ​ Percentage ​ ​ | ​ ​ ​ ​ ​ ​ ​ ​ |
| --- | --- | --- | --- | --- | --- | --- | ---: | --- | --- | ---: |
| Cash | ​ | $20,657,719 | ​ | $27,738,979 | ​ | ​ | (7,081,260) | ​ | ​ | (26)% |
| Working capital | ​ | ​ 21,402,836 | ​ | ​ 30,442,955 | ​ | ​ | (9,040,119) | ​ | ​ | (30)% |
| Total assets | ​ | ​ 27,939,939 | ​ | ​ 35,719,598 | ​ | ​ | (7,779,659) | ​ | ​ | (22)% |
| Accrued interest | ​ | ​ 7,778 | ​ | ​ 8,167 | ​ | ​ | (389) | ​ | ​ | (5)% |
| Term loan, net of debt discount | ​ | ​ 3,431,823 | ​ | ​ 3,422,616 | ​ | ​ | 9,207 | ​ | ​ | —% |
| Total stockholders' equity | ​ | ​ 22,423,460 | ​ | ​ 29,791,588 | ​ | ​ | (7,368,128) | ​ | ​ | (25)% |

| ​ ​ ​ ​ Statement of Cash Flow Data: | ​ ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 ​ ​ ​ ​ | ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Change Dollars ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Percentage ​ ​ ​ ​ | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Net cash flows used in operating activities | ​ | $(5,610,366) | ​ | $(9,348,701) | ​ | $3,738,335 | ​ | 40% | ​ |
| Net cash flows used in investing activities | ​ | (1,549,281) | ​ | (733,722) | ​ | (815,559) |  | (111)% | ​ |
| Net cash flows provided by financing activities | ​ | 78,387 | ​ | 19,177,246 | ​ | (19,098,859) |  | 100% | ​ |
| Net change in cash | ​ | $(7,081,260) | ​ | $9,094,823 | ​ | $(16,176,083) | ​ | ​ ​ | ​ |

### Capital Resources

As of September 30, 2022, our available cash totaled approximately $20,700,000, which represented a decrease of approximately $7,100,000 compared to December 31, 2021. As of September 30, 2022, we had working capital of approximately $21,400,000. Since inception, we have relied upon raising capital to finance our operations. We intend to use our existing cash to further develop our technology, grow our supply network, increase our marketing and sales presence, scale our operations, and for working capital and general corporate purposes.

We believe our cash and cash equivalents, together with anticipated cash flow from operations will be sufficient to meet our working capital, and capital expenditure requirements for at least the next 12 months. During the nine months ended September 30, 2022, our revenue was negatively impacted because of a shutdown of our Ukrainian and Russian supply network at the start of the war between Russia and Ukraine. Additionally, we are continuing to experience a reduction in COVID-19 revenue that has not been more than the offset by increases in non-COVID-19 revenue. In the event that revenue, during the next 12 months, continues to fall short of our projections or if our plans or assumptions change, including as a result of the war between Russia and Ukraine or the impact of COVID-19 or if inflation begins to have a greater impact on our business or if we decide to move forward with any activities that require more outlays of cash than originally planned, we may need to raise additional capital sooner than expected. Our ability to obtain capital to implement our growth strategy over the longer term will depend on our future operating performance, financial condition and, more broadly, on the availability of equity and debt financing. Capital availability will be affected by prevailing conditions in our industry, the global economy, the global financial markets, and other factors, many of which are beyond our control. Specifically, as a result of recent volatility and weakness in the public markets, due to, among other factors, uncertainty in the global economy and financial markets, it may be much more difficult to raise additional capital, if and when, it is needed, unless the public markets become less volatile and stronger at such time that we seek to raise additional capital. In addition, any additional debt service requirements we take on could be based on higher interest rates and shorter maturities and could impose a significant burden on our results of operations and financial condition, and the issuance of additional equity securities could result in significant dilution to stockholders.

### Cash Flows

### Operating Activities

For the nine months ended September 30, 2022, net cash used in operating activities was approximately $5,610,000, which consisted of a net loss of approximately $8,086,000 offset by non-cash charges of approximately $1,829,000, which included $826,000 related to amortization of internally developed software, $633,000 in stock-based compensation, $341,000 in bad debt expense, $14,000 related to depreciation and amortization of property and equipment, $9,000 of amortization of debt issuance cost on the Term Loan, and $6,000 of proceeds from issuance of common stock in exchange for services. Total changes in assets and liabilities of approximately $647,000 were attributable to a $877,000 decrease in accounts receivable-unbilled, a $443,000 decrease in accounts receivable, a $135,000 increase in accounts payable, offset by a $655,000 decrease in deferred revenue, a $124,000 decrease in accrued expenses, and a $15,000 increase in prepaid expenses and other current assets.

For the nine months ended September 30, 2021, net cash used in operating activities was $9,349,000, which consisted of a net loss of $6,911,000 offset by non-cash charges of approximately $3,019,000, which primarily includes a $2,740,000 loss on extinguishment of bridge notes, $870,000 of amortization of discount on amended bridge notes, $714,000 related to amortization of internally developed software, a $260,000 loss on extinguishment of convertible notes, $450,000 in stock based compensation, $34,000 in bad debt expense, $33,000 related to depreciation and amortization of property and equipment, $13,000 proceeds from issuance of common stock in exchange for services, $3,000 of amortization of debt issuance cost on the Term Loan, and $1,000 of amortization of discount and debt issuance costs on convertible notes, partially offset by a $1,312,000 loss on derivative liabilities, and a $788,000 gain on the extinguishment of the note payable. Total changes in assets and liabilities of approximately $5,456,000 were primarily driven by a $1,710,000 decrease in accrued interest, a $1,441,000 decrease in accounts payable, a $1,226,000 increase in accounts receivable, a $1,098,000 increase in accounts receivable-unbilled, a $155,000 decrease in deferred revenue, and a $41,000 increase in prepaid expenses and other current assets, partially offset by an increase in accrued expenses of $214,000.

### Investing Activities

Net cash used in investing activities was approximately $1,549,000 and $734,000 for the nine months ended September 30, 2022 and 2021, respectively. Net cash used in investing activities for the nine months ended September 30, 2022 consisted of $1,549,281 of capitalization of internally developed software. Net cash used in investing activities for the nine months ended September 30, 2021 consisted of $731,172 of capitalization of internally developed software and $2,550 for purchases of property and equipment.

### Financing Activities

Net cash provided by financing activities was approximately $78,000 and $19,200,000 for the nine months ended September 30, 2022 and 2021, respectively. Net cash provided by financing activities for the nine months ended September 30, 2022 consist of $78,387 received from the exercise of stock options. Net cash provided by financing activities for the nine months ended September 30, 2021 consisted of $18,000,000 of proceeds received from the issuance of common stock in connection with the IPO, $3,500,000 of proceeds received from the issuance of note payable, $2,498,000 of proceeds from the issuance of over-allotment shares of common stock, $500,000 of proceeds received from the issuance of bridge notes payable, $44,000 of proceeds received from the exercise of stock options, and $1,000 of proceeds received from the exercise of warrants, partially offset by the $3,000,000 payment of principal to the holders of the bridge notes, $2,340,000 for the payment of offering costs in connection with the issuance of common stock in connection with the IPO, and $26,000 for the payment of debt issuance costs in connection with the note payable.

### Effects of Inflation and Supply Chain Shortages

Our operations are heavily reliant on specimen availability, and as a result, we often receive more requests than we can fulfill. While the Company is subject to these types of supply chain constraints that are specific to the specimen industry, we have not been affected by the more common supply chain issues currently affecting the economy, specifically surrounding transportation. Due to the small size of the packages that we ship, our carriers were able to continue making timely deliveries during the nine months ended September 30, 2022.

We have experienced negative effects of inflation in certain areas of our business due to the high rates of inflation in the world’s current economy. This inflation is affecting employee salaries, which account for a significant portion of our operating costs. Additionally, costs of supplies have been affected by inflation; however, these costs are not significant to the Company’s results.

Inflation has not had a significant impact on the cost of specimens due to our long-term contracts maintained with vendors, which include revenue sharing plans.

### Non-GAAP Financial Measure

To supplement our financial statements, which are prepared and presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we use adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA”), a non-GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We define our non-GAAP financial measure of Adjusted EBITDA as net loss, excluding income tax benefit, change in fair value of derivative liabilities, loss on extinguishment of bridge notes and related party bridge notes, gain on extinguishment of note payable, interest expense, depreciation and amortization, non-cash impact of severance accruals and share-based compensation expense.

We believe that Adjusted EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA. In particular, we believe the exclusion of the change in fair value of derivative liabilities on the bridge notes and convertible notes provides a useful supplemental measure in evaluating the performance of our operations and provides better transparency into our results of operations.

We are presenting the non-GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to net loss, the closest comparable GAAP measure. Some of these limitations are that:

- Adjusted EBITDA excludes the change in fair value of the derivative liability, which represents a non-cash charge related to the change in fair value for the embedded features on the convertible notes, bridge notes, and related party bridge notes;
- Adjusted EBITDA excludes the loss on the extinguishment of bridge notes and related party bridge notes;
- Adjusted EBITDA excludes the loss on the extinguishment of convertible notes;
- Adjusted EBITDA excludes the gain on the extinguishment of note payable;
- Adjusted EBITDA excludes amortization of debt issuance costs and discounts on convertible notes which are components to interest expense;
- Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of leasehold improvements, property and equipment and amortization of internally developed software and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and
- Adjusted EBITDA excludes share-based compensation expense which has been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy.

The following table presents a reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure, for each of the periods presented:

*(unaudited)*

*(unaudited)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended September 30, 2022 | ​ ​ | ​ ​ 2021 | ​ ​ ​ | ​ ​ Nine Months Ended September 30, 2022 | ​ ​ | ​ ​ 2021 | ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Net loss | ​ | $(3,095,690) | ​ | $(1,553,023) | ​ | $(8,086,241) | ​ | $(6,911,428) | ​ |
| Depreciation and amortization | ​ | 293,920 | ​ | 253,990 | ​ | 839,391 | ​ | 747,834 | ​ |
| Accrued severance costs | ​ | ​ 350,000 | ​ | ​ — | ​ | ​ 350,000 | ​ | ​ — | ​ |
| Share-based compensation | ​ | 219,936 | ​ | 399,821 | ​ | 633,475 | ​ | 450,231 | ​ |
| Interest expense | ​ | 58,591 | ​ | 75,922 | ​ | 138,912 | ​ | 2,062,548 | ​ |
| Loss on extinguishment of bridge notes and bridge notes, related parties | ​ | — | ​ | — | ​ | — | ​ | 2,740,425 | ​ |
| Loss on extinguishment of convertible notes and convertible notes, related parties | ​ | ​ — | ​ | ​ — | ​ | ​ — | ​ | ​ 260,185 | ​ |
| Gain on extinguishment of note payable | ​ | — | ​ | — | ​ | — | ​ | (788,156) | ​ |
| Change in fair value of derivative liability on convertible notes | ​ | — | ​ | — | ​ | — | ​ | 271,000 | ​ |
| Change in fair value of derivative liability on bridge notes and bridge notes, relates parties | ​ | — | ​ | — | ​ | — | ​ | (1,582,700) | ​ |
| Adjusted EBITDA | ​ | $(2,173,243) | ​ | $(823,290) | ​ | $(6,124,463) | ​ | $(2,750,061) | ​ |

### Critical Accounting Policies

A summary of the significant accounting policies is provided in Note 2 of our unaudited condensed financial statements included in this Quarterly Report.

Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue, and expenses at the date of the unaudited condensed financial statements. Generally, we base our estimates on historical experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The following accounting policies involve estimates that are considered critical due to the level of subjectivity and judgment involved, as well as the impact on our financial position and results of operations.

### Revenue Recognition

We recognize revenue using the five-step approach as follows: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) we satisfy the performance obligations.

We generate revenue by procuring various specimens from hospitals, laboratories, and other supply sites, for our medical research customers using our proprietary software, the iSpecimen Marketplace, to identify, locate, and ultimately validate the required specimens to our customers’ requested specifications. The Company’s performance obligation is to procure a specimen meeting the customer specification(s) from a supplier, on a “best efforts” basis, for our customer at the agreed price per specimen as indicated in the customer contract with the Company. We do not currently charge suppliers or customers for the use of our proprietary software. Each customer will execute a material and data use agreement with the Company or agrees to online purchase terms, each of which includes terms such as specimen and data use, shipment terms, payment, and cancellation terms. These are then supplemented by purchase orders that specify specimen requirements including detailed inclusion/exclusion criteria, quantities to be collected, and pricing. Collectively, these customer agreements represent the Company’s contracts with its customer. Generally, contracts have fixed unit pricing. For certain specimen orders, a refundable customer deposit may be required prior to order fulfillment depending on project set-up requirements, presented as deferred revenue. The Company expects to recognize the deferred revenue within the next twelve months.

Specimen collections occur at supply sites within our network. “Collection” is when the specimen has been removed, or “collected” from the patient or donor. A specimen is often collected specifically for a particular Company order. Once collected, the specimen is assigned by the supplier to the Company and control of the specimen passes to the Company. “Accession” is the process whereby a collected specimen and associated data are registered and assigned in the iSpecimen Marketplace to a particular customer order, can occur while a specimen is at the supplier site or while at the Company site and is when control of the specimen passes to the customer. Suppliers may ship specimens to the Company or directly to the customer if specimens must be delivered within a short time period (less than 24 hours after collection) or shipping to the Company is not practical.

We have evaluated principal versus agent considerations as part of our revenue recognition policy. We have concluded that we act as principal in the arrangement as we manage the procurement process from beginning to end and determine which suppliers will be used to fulfill an order, usually take physical possession of the specimens, set prices for the specimens, and bear the responsibility for customer credit risk.

We recognize revenue over time, as we have created an asset with no alternative use, and we have an enforceable right to payment for performance completed to date. At contract inception, we review a contract and related order upon receipt to determine if the specimen ordered has an alternative use by us. In the rare circumstances where specimens do have an alternative future use, our performance obligation is satisfied at the time of shipment. Generally, specimens ordered do not have an alternative future use to us and our performance obligation is satisfied when the related specimens are accessioned. We use an output method to recognize revenue for specimens with no alternative future use. The output is measured based on the number of specimens accessioned.

Customers are typically invoiced upon shipment. Depending on the quantity of specimens ordered, it may take several accounting periods to completely fulfill a purchase order. In other words, there can be multiple invoices issued for a single purchase order, reflecting the specimens being accessioned over time. However, specimens are generally shipped as soon as possible after they have been accessioned.

Once a specimen, that has no alternative future use, and for which we have an enforceable right to payment, has been accessioned, we record the offset to revenue in accounts receivable - unbilled. Once the specimen has been shipped and invoiced, a reclassification is made from accounts receivable - unbilled to accounts receivable.

Customers are generally given fourteen days from the receipt of specimens to inspect the specimens to ensure compliance with specifications set forth in the purchase order documentation. Customers are entitled to either receive replacement specimens or receive reimbursement of payments made for such specimens. We have a nominal history of returns for nonacceptance of specimens delivered. When this has occurred, we have given the customer a credit for the returns. We have not recorded a returns allowance.

### Internally Developed Software

We capitalize certain internal and external costs incurred during the application development stage of internal use software projects until the software is ready for its intended use. Amortization of the asset commences when the software is complete and placed into service and is recorded in operating expenses. We amortize completed internal-use software over its estimated useful life of five years on a straight-line basis. Costs incurred during the planning, training and post-implementation stages of the software development life cycle are classified as technology costs and expensed to operations as incurred. Costs that do not meet the capitalization criteria are expensed as incurred.

### Stock-based Compensation

We record stock-based compensation for options granted to employees, non-employees, and to members of the board of directors for their services on the board of directors based on the grant date fair value of awards issued, and the expense is recorded on a straight-line basis over the requisite service period. Forfeitures are recognized when they occur.

We use the Black-Scholes-Merton option pricing model to determine the fair value of stock options. The use of the Black-Scholes-Merton option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common stock. We have concluded that its historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term. Therefore, the expected term was determined according to the simplified method, which is the average of the vesting tranche dates and the contractual term. Due to the lack of Company-specific historical and implied volatility data, the estimate of expected volatility is primarily based on the historical volatility of a group of similar companies that are publicly traded. For these analyses, companies with comparable characteristics are selected, including enterprise value and position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of its stock-based awards. The risk-free interest rate is determined by reference to U.S. Treasury zero-coupon issues with remaining maturities similar to the expected term of the options. We have not paid, and do not anticipate paying, cash dividends on shares of our common stock.

### Common Stock Valuations

For all periods prior to our initial public offering, there was no public market for our common stock, and, as a result, the fair value of the shares of common stock underlying our share-based awards was estimated on each grant date by our board of directors. To determine the fair value of our common stock underlying option grants, our board of directors considered, among other things, input from management, valuations of our common stock prepared by unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, and our board of directors’ assessment of additional objective and subjective factors that it believed were relevant, and factors that may have changed from the date of the most recent valuation through the date of the grant. These factors included, but were not limited to:

- our results of operations and financial position, including our levels of available capital resources;
- our stage of development and material risks related to our business;
- our business conditions and projections;
- the valuation of publicly traded companies in the life sciences and scientific research and development sectors, as well as recently completed mergers and acquisitions of peer companies;
- the lack of marketability of our common stock;
- the prices at which we sold shares of our convertible preferred stock to outside investors in arm’s length transactions;
- the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;
- the likelihood of achieving a liquidity event for our securityholders, such as an initial public offering or a sale of the Company, given prevailing market conditions;
- the hiring of key personnel and the experience and expertise of management;
- trends and developments in our industry; and
- external market conditions affecting the life sciences and scientific research and development industry sectors.

For our valuations of common stock performed, we used a hybrid method of the Option Pricing Method (“OPM”) and the Probability-Weighted Expected Return Method (“PWERM”). PWERM considers various potential liquidity outcomes. Our approach included the use of an initial public offering scenario and a scenario assuming continued operation as a private entity. Under the hybrid OPM and PWERM, the per share value calculated under the OPM and PWERM are weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share of the common stock before a discount for lack of marketability is applied.

To determine the fair value of our common stock, we first determined our enterprise value using accepted valuation approaches; adjusted these valuation approaches with relevant discounts; weighted the results appropriately; and then allocated the equity value to our common stock and common stock equivalents. Our enterprise value was estimated using two generally accepted approaches: the income approach and the market approach. The income approach estimates enterprise value based on the estimated present value of future cash flows the business is expected to generate over its remaining life. The estimated present value is calculated using a discount rate reflective of the risks associated with an investment in a similar company in a similar industry or having a similar history of revenue growth. The market approach measures the value of a business through an analysis of recent sales or offerings of comparable investments or assets, and in our case, focused on comparing us to a group of our peer companies. In applying this method, valuation multiples are derived from historical and projected operating data of the peer company group. We then apply the selected multiples to our operating data to arrive at a range of indicated enterprise values of the Company. We then subtracted the net debt to determine equity value.

As a result of our initial public offering in June 2021, it is not necessary to determine the fair value of our common stock, as our shares are traded in the public market.

### Recent Accounting Standards

For information on recent accounting standards, see Note 2 to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 22, 2022.

### JOBS Act Transition Period

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more; (ii) December 31, 2026; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

## Controls and procedures

As filed, 1,761 characters.

### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that during the period covered by this Quarterly Report, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2022 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 188 characters.

There have been no material changes with respect to risk factors previously disclosed in the Company’s Form 10-K for the year ended December 31, 2021, filed with the SEC on March 22, 2022.

Filed Nov 8, 2022.
Source: SEC EDGAR, the filing index for accession 0001558370-22-016722. Last ingested by Listed: Nov 5, 2026, 19:56 ET. No prices; not investment advice.